PBOC Grace Period for Third-Party Payment Processor Licenses Set to Expire

With the arrival of September 2011, the grace period for third-party payment processor licenses will soon end. The People’s Bank of China (the “PBOC”), the central bank of China, has issued 40 licenses in two rounds. Many existing third-party payment processors are still waiting for the next round of license release. However, the market expectation about the next round of license release is not optimistic. The licensed third-party payment processors are aggressively looking for targets to merge, and some small- and medium-sized unlicensed third-party payment processors are seriously considering quitting.

The requirement for the government license to engage in the third-party payment business was established by the Administrative Measures on the Payment Service by Non-Financial Institutions (the “Payment Service Measures”), which took effect on October 1, 2010. Realizing that it is impossible for all existing third-party payment processors to comply with the Payment Service Measures, the PBOC granted a one-year grace period to allow the existing third-party payment processors to prepare for the application and run the business without any license.

Under the Payment Service Measures, working as intermediary agents to transfer all or a portion of monetary funds between payers and beneficiaries by using any of the methods listed below is subject to the license requirement:

1. Payment through Networks. Such payments would include a monetary funds transfer between the payer and the beneficiary through public networks or private networks, including payments through wire transfer, payments through the Internet, payments through cell phones, payments through landline telephones and payments through digital TV;
2. Issuance and Acceptance of Prepaid Cards. Prepaid cards are cards that are issued for profit and in the form of passwords or cards with magnetic strips or electronic chips, and contain prepaid value that can be used to purchase goods or services;
3. Acquisition of Payments using Bankcards. For example, the collection of monetary funds for merchants in a bankcard network by using a POS terminal; and
4. Other Payment Services. Other methods of payment services, to be determined by the PBOC in the future on an as-needed basis.

The Payment Service Measures provide that the PBOC will draft a special rule to regulate foreign investment in China that engages in the business of payment processing. The official comment to such a provision is that the PBOC will not be ready to issue any licenses to foreign invested companies in China until the State Council approves the special rule to be drafted by the PBOC. So far, there is no certain news about the status of the special rules regulating foreign investment in this area. However, it is interesting that one existing foreign invested third-party payment processor has filed its application, and the application is being reviewed by the PBOC. The third-party payment society wants to know how the PBOC will deal with such an application.